March 28, 2010

Dear Catalog CEOs: Contact Strategy

Dear Catalog CEOs:

How often should you contact your customers?

Well, back in the day, the only way customers purchased was when you mailed them something.

Today, this relationship has been blown up by the internet. In the "multichannel era" (2001 - 2007), it was suggested that you had to mail catalogs or you wouldn't get any online demand. Many now use mail/holdout tests, and know that this is no longer the case. In fact, it is not uncommon to execute a mail/holdout test, and observe that half or more of the demand does not disappear when catalogs disappear.

To think that all of our measurement/matchback systems get this wrong, costing us a ton of profit. Hmmmmm.

If you want to greatly simplify this mystery, segment your twelve-month customer file into three groups.

Customers who ordered via the telephone.

Customers who ordered online, and previously ordered via the telephone.

Customers who ordered online, and only order online.

Customers in the first segment still follow the "old rules" ... meaning that you have to mail catalogs, or you won't get demand from these customers.

Customers in the second segment might follow the rules of the "multichannel era" of 2001 - 2007. Often, you can reduce contacts by 15% to 25% without detriment to the top-line.

Customers in the third segment follow rules that the catalog industry isn't used to. These customers tend to be less loyal (that has been known for a decade or more). These customers do spend money online without the aid of catalog mailings. These customers can be managed very profitably, in fact, total company profit can be increased by 15% to 40% simply by managing these customers in an appropriate manner.

How many other ideas do you have for increasing company profit by between 15% and 40%, right now?

And if you don't have any ideas for increasing company profit by between 15% and 40%, right now, why wouldn't you capitalize on this methodology? What are the reasons that limit your ability to capitalize on this methodology?

Most of my Multichannel Forensics projects focus on these three audiences, trimming mailings in order to increase profit. The money saved here is re-invested in customer acquisition and in online marketing (search, e-mail, re-targeting, mobile, and in some cases, social media).

2 comments:

Kevin - love this concept. An interesting extension that I've completed... take your audience #2 and show their percentage of demand by order channel by year, over time. You may see that they are transitioning to online only (moving forward) at a rate of x% each month or year.

Why is this important? While your 'lifetime query' of channel code will show they are multichannel, recent data may show they are really a #3 (online only) and should be treated as such.

Also awesome to watch the audience reaction when you tell them that in 5 years, at this rate, there will be <10% of orders from phone+online folks. Big implications for merchandising, customer service, and branding.

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Kevin Hillstrom, President, MineThatData

Kevin is President of MineThatData, a consultancy that helps CEOs understand the complex relationship between Customers, Advertising, Products, Brands, and Channels. Kevin supports a diverse set of clients, including internet startups, thirty million dollar catalog merchants, international brands, and billion dollar multichannel retailers. Kevin is frequently quoted in the mainstream media, including the New York Times, Boston Globe, and Forbes Magazine.

Prior to founding MineThatData, Kevin held various roles at leading multichannel brands, including Vice President of Database Marketing at Nordstrom, Director of Circulation at Eddie Bauer, and Manager of Analytical Services at Lands' End.

You may contact kevin at kevinh@minethatdata.com.

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